Telecoms.com

interview

Money Man

In November last year, Jan Frykhammar became CFO of Ericsson. Here he talks to Telecoms.com about his first few months in the job and how a long history at the Swedish vendor allows him to bring more than just number crunching to the role.

Jan Frykhammar may be new to the role of chief financial officer at Ericsson, but he’s not new to the company. He joined the Swedish vendor in 1991 and has held a variety of roles, heading up sales for the Global Services unit, looking after the financial and commercial elements of the global Vodafone account and shouldering the CFO responsibilities for Ericsson’s US operation.

Not all freshly appointed blue chip CFOs have the company DNA running through them to this degree but Frykhammar says that his lengthy service with Ericsson—something he shares with CEO Hans Vestberg, as he points out—enables him to become involved in all areas of the business, and not just the numbers.

“The more you understand about the business, the more you can add value in strategic questions around what markets to enter,” he says. “It also helps to broaden relationships with customers. I meet a lot of operator CFOs because there are common things we can drive like efficiencies and new business models.”

This breadth of responsibility is reflected in conversation with Fryhammar as he ranges between the kind of future-gazing usually reserved for marketing specialists and the financial decision-making that is the more traditional reserve of the CFO. Ericsson’s prediction that there will be 50bn mobile connections by 2020 has become something of a hobbyhorse for the firm and Frykhammar loses little time in warming to the theme.

“Look at electricity as an example,” he says. “In the past electricity was just used in houses for heat and light. Today all the devices in the home require electricity. Think about that in the context of mobile communications; that’s the potential.

It is also the future and, when Frykhammar took the CFO position in November 2009, he had rather more immediate and prosaic matters to deal with, namely to deliver the firm’s Q4 results. With those out of the way, his responsibilities are now four-fold, he says. First off, he wants Ericsson to grow faster than the market. This is a sales ambition, he says, rather than a target related to a specific timeframe. Second he wants the firm to develop best in class margins and, third, he wants to improve Ericsson’s cash conversion. Fourth on the list, and perhaps the most interesting challenge the firm faces, is to engineer a turnaround at its two joint ventures.

Frykhammar occupies a seat on the board of each of these firms, handset player Sony Ericsson and silicon vendor ST Ericsson, both of which have been the subject of speculation around Ericsson’s ongoing involvement. Sony Ericsson held a press conference on the eve of this year’s Mobile World Congress in Barcelona in February and, while Sony chief Howard Stringer was on hand to give a presentation and show support, senior Ericsson representatives were notable by their absence.

Unsurprisingly, and despite the question marks that analysts and observers have raised about the viability of Sony Ericsson and ST Ericsson, Fryhammar says he has no concerns over their performance. ST needs to be shown patience, he says. “That joint venture was only formed in Q1 of 2009, so its newly created, with new management,” he says. “They have their plain in place and they are executing on that.”

Sony Ericsson, of course, is far more established and does not have the luxury of the kind of grace period afforded a fledgling operation. Pressed for comment on the handset player, Frykhammar defers to its CEO Bert Nordberg, saying only that “we want it to turn around. That’s the first and most important target.” What will happen if that turnaround doesn’t materialise remains to be seen, although Frykhammar says that the only reason he and Hans Vestberg were not at the Sony Ericsson press conference in Barcelona was that they were busy rehearsing their own presentation. Sony had no event of its own and so made its presence felt at its offspring’s announcement.

“We still think that both Ericsson and Sony, in Sony Ericsson, have a lot to offer,” he says. “And we hope that consumers feel that, too. Through Sony with its media and its consumer electronics expertise, and with Ericsson’s engineering and mobility leadership, we have a great asset,” he says.

Ericsson has effected something of a turnaround of its own as it has worked to reduce headcount and increase efficiencies throughout its operations. The firm cut 5,000 staff last year and is expected to shave another 1,500 from the roster during 2010. But, says Frykhammar, the headline cost management programme that Ericsson has been trumpeting in recent times will be concluded this year.

“I think we will always look for efficiencies and synergies but we feel that we want to put an end to that programme from an external communications perspective and start to look at the P&L in the normal way again; which means not excluding restructuring costs and things like that,” he says. Efficiencies have to be designed into products and working practices, he explains, citing a new base station product, the RBS6000, which Ericsson says will require less manufacturing resources to produce.

Reactive cost management will play a role as well. “There are always adjustments up and down in the size of the organisation because of business volume, if we lose a contract, although we always hate to lose. Last year there were a couple of examples of that and you have to readjust,” he says. “Or individual markets may have problems. Spain, for example, has had a hard couple of years because the country is in financial trouble. So we’ve adjusted the size of our organisation there to reflect that. But an adjustment like that is not included in the efficiency programme that we communicate to the market.”

Likewise there are times when Ericsson has to take more staff on board. The firm leads the managed services market in the mobile industry and new deals in this space frequently involve the absorption of carrier staff and associated costs. The Global Services business unit at Ericsson employed 8,000 people when it was formed in 2003. Today its headcount exceeds 40,000. “The top line growth is there and we have to recruit,” Frykhammar says.

The cost pressures on Western vendors like Ericsson are due in no small part to the recent success of Chinese companies like ZTE and Huawei. Able to marshal enormous R&D resources and offer products and services at aggressively competitive rates, these two companies have changed the face of the infrastructure market. They also have the luxury of enormous credit lines from the Chinese state banks, enabling them to offer attractive vendor financing deals to operators keen to restrict their capex in a difficult economic climate. So does this give Frykhammar cause for concern?

“Ericsson has very good support from the Kingdom of Sweden,” he says in response. “They back us so that any bank can lend money to an operator under the guarantee of the Export Credit Agency of Sweden. We have always done a lot of export credit financing as part of our business, it’s nothing new for us. Ericsson doesn’t carry a large amount of the risk because that goes to Sweden or Canada, or wherever, because we’re using ECAs in the countries where we export from.”

And some operators, if not all of them, are starting to spend, says Frykhammar. “We have been extremely successful in early LTE contracts. We have close to 300 million subscribers covered by the LTe networks that we have won so far because we are the major supplier to Verizon for LTE. Those operators with CDMA2000 networks are in a hurry to launch LTE. The fundamentals are there and our ability to make money and be successful is centred on the fact that we need to continue to stay in the lead when it comes to installed base and market share.”

It’s difficult to imagine that optimism in this industry will ever again be anything but cautious but there is a sense that momentum is gathering once again. “This has been the worst financial crisis, perhaps, that there has ever been,” says Frykhammar. “So in a way we planned for being more impacted than we have been. Now I see in discussions with operators a focus on quality and on how we can work together growing the top line. So in a way it is more optimistic. It’s not all about cutting cost and capex.”

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